Ukraine is still in desperate need of extra funding to ensure it pays off its substantial debt maturities in 2009 and 2010 despite this week’s agreement of a $16.4bn loan from the IMF, but issuing in the international markets is unfeasible, said analysts.
A new two year loan was agreed this week with $4.5bn available immediately. The IMF programme mandated changes in monetary and exchange rate policies, banking recapitalisation and fiscal adjustments. The IMF forecasted a 3% recession in Ukraine next year and, as a condition for the loan, the budget deficit must not exceed 1% of GDP in 2008 with a balanced budget in 2009. Sergei Voloboev, emerging Europe economist at Credit Suisse, envisaged a funding gap of around $2bn for 2009 and said further assistance from the World Bank, European Community funds or the European Bank for Reconstruction and Development is needed.
The sovereign faces $9bn in debt repayments over the next two years for Eurobonds, loans and local market borrowings but this does not include any private market transactions. In August and September 2009, $1.515bn of debt is set to mature. This comprises Ukraine’s $500m Eurobond due August 5 2009, Naftogaz’s $500m Eurobond due September 2009, mobile telecom operator Kyivstar $265m due 17 August 2009 and State-Import Bank of Ukraine’s $250m due in September. "August and September 2009 will be tricky months for Ukrainian borrowers in terms of high concentration of external debt payments," Voloboev feared.
But the frequent sovereign issuer is unlikely to brave volatile market conditions. "Even if markets stabilise, issuing any new bonds soon will be expensive and markets would want Ukraine to live within its means for now."
A former coverage banker for the borrower said: "With the five year CDS and spreads at crazy levels, they are definitely not going to access the markets."
Voloboev said with the IMF support, Ukraine can do without access to capital markets for a couple of years but it has to implement the right policies and will probably require further multilateral assistance. "The country needs to reduce domestic consumption — an alternative would be a disorderly and very costly exchange rate adjustment," he said.